basf reaches agreement with cognis holding luxembourg s.à ... · based on renewable raw-materials,...

BASF reaches agreement with Cognis Holding Luxembourg S.à.r.l.to purchase Cognis Conference Call

June 23, 2010, 9:00 a.m. (CEST)

Ludwigshafen

Analyst Conference Call Script

Dr. Jürgen Hambrecht Dr. John Feldmann

The spoken word applies.

Acquisition of Cognis Analyst Conference Call June 23, 2010

Acquisition of CognisGrowth + Value + Sustainability

3Acquisition of Cognis - June 20103

BASF + Cognis

=

Growth + Value + Sustainability


Jürgen Hambrecht

[Chart 3: BASF + COGNIS]

Good morning Ladies and gentlemen

I am excited to discuss with you our acquisition of Cognis which we

announced this morning.

Cognis is a global leader in value-added products with proven

expertise in products for personal and home care as well as

nutrition. Addressing the trends wellness and sustainability, Cognis

serves customers primarily in the home and personal care as well

as food industries with natural based products.

With the acquisition of Cognis we will significantly strengthen our

Performance Products segment.

In short: BASF plus Cognis means growth, value and sustainability

for the benefit of all stakeholders of both companies.



BASF’s acquisition criteria

Our goal is to acquire businesses that

1.

2.

3.

4.

Generate growth above the industry average

Are innovation-driven

Offer a special value proposition to customers

Reduce earnings cyclicality

Financial acquisition criteria

5. EPS accretive by year 3 at the latest


[Chart 4: BASF’s acquisition criteria]

BASF is The Chemical Company and we want to remain so in the

future.

Our motto is to strengthen our strengths and eliminate our

weaknesses. We want to make our portfolio more competitive and

cyclically resilient.

When we evaluate an acquisition the following criteria have to be

met:

The target has to

• generate growth above the industry average

• be innovation-driven

• offer a special value proposition to customers and

• contribute to reduced earnings cyclicality.

Finally, and most importantly, the acquisition has to be EPS

accretive by year 3 at the latest.



1 | Transaction highlights

2 | Facts & figures of Cognis

3 | Acquisition rationale

4 | Integration

5


Transaction highlights

Purchase price equity: €700 million

LTM*-EBITDA, reported: €386 million

LTM*-EBITDA, adjusted: €422 million (before special items)

Enterprise value: €3.1billion– Represents a multiple of 7.3 x LTM*-EBITDA adjusted

100% cash consideration, no financing conditions

Expected closing latest in November 2010

*LTM = last twelve months


[Chart 5: Transaction highlights]

[Chart 6: Transaction highlights]

BASF is offering to pay 700 million Euros in cash for the acquisition

of Cognis’ equity.

The enterprise value amounts to 3.1 billion Euros. This represents

a multiple of 7.3 times the last twelve months adjusted EBITDA of

Cognis.

Our offer will be subject to customary conditions.

We expect closing no later than November 2010.






4 | Integration

7


Cognis A global leader in value-added products

Leading supplier of value-added products based on renewable raw-materials

Innovative company serving megatrend-driven growth markets– Global leader in personal care ingredients– Strong global position in home care ingredients– Preferred supplier for nutrition and health ingredients

Excellent formulation and application know-how

Strong relationships with leading multinational consumer goods companies

Global presence and attractive manufacturing technology


[Chart 7: Facts & figures of COGNIS]

[Chart 8: COGNIS – A global leader in value-added products]

Cognis develops innovative products and concepts for personal

care, home care and modern nutrition, as well as high-performance

solutions for numerous industrial sectors.

With 160 years of experience in producing products and solutions

based on renewable raw-materials, the company is a global market

leader in personal care ingredients and has a strong global position

in home care ingredients as well.

Furthermore, Cognis is the preferred supplier of natural ingredients

for the food and beverage, dietary supplement and pharmaceutical

industries.

Cognis combines excellent formulation and application know-how

with marketing expertise to create unique offerings for customers.

Consequently, Cognis is a preferred supplier of many multinational

corporations, including leading consumer goods companies.



28, headquartered in Monheim, GermanyProduction sites

~3% of salesR&D spending

€488 millionCash flow

12.5%EBITDA margin 2009

5,572 (as of December 2009)Employees

€322 millionEBITDA 2009

€2,584 millionSales 2009

CognisKey figures 2009

Source: Cognis 2009 company report


Specific solutions based on renewable resources formining, synthetic lubricants,coatings and crop protection industries

Sales 2009: €786 million

Functional Products

Products and formulations forthe personal and home caremarkets

Sales 2009: €1,457 million

Care Chemicals

Products, formulations and concepts for functional food, beverage, dietary supplements and pharma

Sales 2009: €325 million

Nutrition & Health

Cognis Portfolio of value-added products


[Chart 9: Cognis – Key Figures 2009]

In 2009, Cognis generated sales of nearly 2.6 billion Euros.

EBITDA amounted to 322 million Euros, corresponding to an

EBITDA margin of 12.5%.

Operating cash flow totaled 488 million Euros.

At year end 2009, the company had 5,572 employees and operated

28 production sites.

Cognis sold its products in more than 100 countries worldwide.

[Chart 10: Cognis – Portfolio of value added products]

Currently Cognis’ business is managed along three segments: Care

Chemicals, Nutrition & Health and Functional Products.

Care Chemicals encompasses products and formulations for the

personal and home care markets.

The Nutrition & Health segment specializes on products,

formulations and concepts for functional food, beverage, dietary

supplements and pharma.

And in Functional Products, Cognis develops specific solutions

based on renewable resources for the mining, synthetic lubricants,

coatings and crop protection industries.



Care Chemicals 13.2%

Nutrition & Health 13.2%

Functional Products 11.2%

EBITDA margin 2009

Nutrition & HealthFunctional Products

786 88

325 43

1,457 193

160%

20%

40%

60%

80%

100%

Sales 2009 EBITDA 2009

Care Chemicals

Sales 2009 EBITDA 2009

Other

CognisPerformance by business segment


€2,584 million €322 million

(2)


2009 Sales by customer location: €2.6 billion

Europe53%

Central & South America8%

North America21%

Africa1%

Cognis Strong regional presence

Asia17%



[Chart 11: Cognis – Performance by business segment]

In 2009, Cognis’ sales of 2.6 billion Euros were split as follows:

Care Chemicals accounted for 56%, Nutrition & Health for 13% and

Functional Products for 30%.

EBITDA totaled 322 million Euros in 2009.

In terms of EBITDA margin, Care Chemicals and Nutrition & Health

both generated 13% while Functional Products came in slightly

lower at 11%.

[Chart 12: Cognis – Strong regional presence]

Cognis’ business covers all relevant markets across the world.

Europe accounted for 53% of sales in 2009.

North America and Asia generated 21% and 17% of sales

respectively.

Central and South America contributed 8% to sales.



Q1’10 segment sales (million €) vs. Q1’09 EBITDA (million €)

Cognis Strong start into 2010

Functional Products229

+14%

Care Chemicals407+10%

€728+11%

130

66

899275

0

50

100

150

Q1 Q2 Q3 Q4 Q120102009


10%EBITDA margin 12% 14% 14% 18%

EBITDA margin of 18% in Q1 2010

Nutrition & Health88

+5%


[Chart 13: Cognis – Strong start into 2010]

Cognis had a very strong start into 2010

In the first quarter, sales rebounded by 11% to 728 million Euros

supported by a strong recovery in demand and good trading

conditions.

The volume recovery resulted in favorable capacity utilization rates

which together with stable operating costs resulted in a very

significant improvement in operating results.

EBITDA almost doubled to 130 million Euros compared to the first

quarter of 2009.

The EBITDA margin rose to 18%. Broken down by segment, Care

Chemicals achieved an EBITDA margin of 18%, Nutrition & Health

22% and Functional Products 17%.



Market leader in extraction chemicals for copper-miningMarket leader in renewable ingredients for synthetic lubricantsExcellent position in additives for water-based coatingsStrong in surfactants & solvents for crop protection based on renewable raw materials

Functional Products

Market leader in personal careGood position in home care and industrial cleaning

Care Chemicals

Market leadership in natural-based sterols and vitamin EExcellent market position in functional food and dietary supplements

Nutrition & Health

CognisMarket positions


[Chart 14: Cognis – Market positions]

Cognis is undisputedly a global leader in Care Chemicals, with

market leadership in personal care, strong positions in home care

and industrial cleaning. Its portfolio comprises personal and home

care ingredients such as surfactants, polymer emulsifiers,

emollients, rheology modifiers and actives.

In Nutrition & Health, Cognis is holding market leadership positions

in natural-based sterols and vitamin E. Using natural-based

ingredients and applying extensive nutrition expertise, Cognis holds

excellent market positions in functional food and dietary

supplements.

Cognis is a market leader in extraction chemicals for copper-mining

and has a strong position in surfactants and solvents for crop

protection based on renewable raw materials. It is the market leader

in renewable ingredients for synthetic lubricants and has an

excellent position in additives for water-based coatings.



Coatings: Odor-free, free of volatile organic compoundsBiolubricants: enable significant fuel efficiencyCrop protection: readily biodegradable adjuvants with soft ecotox profile

Functional Products

Skin: - Offers anti-aging actives- Protects and repairs skin- Increases skin elasticity,firmness and resilience

Hair:- Makes hair soft and easy tobrush

Care Chemicals

Helps to reduce body fatImproves health of heart by reducing cholesterolProvides good taste, texture and stable volume of food Contains 100 percent natural colorants

Nutrition & Health

CognisInnovative product features

Bild Bild


[Chart 15: COGNIS – Innovative product features]

Cognis creates advanced solutions and products with innovative

features and high value for its customers.

In skin care, Cognis offers anti-aging actives, products which protect

and repair the skin as well as increase skin elasticity, firmness and

resilience.

Cognis’ hair care products contain cationic polymers which make

hair soft and easy to brush.

In Nutrition & Health, Cognis provides solutions that contribute to

health and well-being. Its products help to reduce body fat and

cholesterol lowering the risk of heart disease.

Cognis’ Functional Products are sustainable chemical solutions with

top-performance. For example, Cognis focuses on coatings with

little or no volatile organic compounds. Moreover, Cognis produces

lubricants that enhance the efficiency of machinery and meet or

exceed major international environmental standards.



Trend towards use of renewable resourcesIndustrial production growth

Expected market growth in the various businesses: 4-6% p.a.

Functional Products

Increasing wealth in emerging marketsIncreasing environmental and social awareness of consumersAging populationRelevant personal and home care market: ~€7.5 billion

• Expected growth 4% p.a.

Care Chemicals

Trend towards health & wellnessAging population

Relevant nutrition ingredients market: ~€2 billion

• Expected growth: 3-4% p.a.

Nutrition & Health

Cognis Growth drivers


[Chart 16: Cognis – Growth drivers]

The relevant market for care chemicals amounts to approximately

7.5 billion Euros and is projected to grow at about 4% per year.

Growth drivers in Care Chemicals are the megatrends of rising

wealth in emerging markets, the increasing environmental and

social awareness of consumers as well as the increasing and aging

world population.

The relevant market for Nutrition & Health amounts to approximately

2 billion Euros and is projected to grow at about 3 to 4% per year.

Main growth drivers are the trends towards health & wellness and

the aging population.

Growth drivers in Functional Products are the trends towards

environmental awareness as well as an increasing industrial

production in general. We expect market growth rates in the various

businesses ranging from 4 to 6% per year.



Innovative, chemical solutions based on renewablesEstablished position with leading industry players

Functional Products

Strong customer relationship Top-class innovation managementSuperior formulation technology and application know-howLeading position in products based on renewable raw materialsGlobal manufacturing footprint

Care Chemicals

Long-term partnership with multinational food companiesInnovative solutions based on consumer insights and regulatory expertiseExtensive formulation know-howBroad range of natural ingredients

Nutrition & Health

CognisSuccess factors


[Chart 17: Cognis – Success factors]

In Care Chemicals, Cognis offers state-of-the-art, high-value

solutions to its customers. Its innovation strength and strong

marketing organization are globally well recognized within the

industry.

For sure, Cognis’ success factors in Care Chemicals are its strong

brands, its innovative products, its leading position in products

based on renewable raw materials, its superior formulation

technology and its strong partnerships with customers.

In Nutrition & Health, Cognis’ long-term relationships with

multinational food companies and its broad range of natural-based

products are unique selling points. With its excellent formulation and

application know-how, Cognis is able to create targeted solutions

that offer real user benefits and make its customers more

successful.

Cognis’ success factors in Functional Products are its high-value,

innovative chemical solutions focusing on renewable resources.

Consequently, Cognis has established positions with leading

industrial players.






4 | Integration

18


1. Become the preferred partner for leading consumer goods companies

Achieve world leading positions in personal and home care ingredientsExpand position for nutrition and health productsBecome major supplier of products based on renewable raw materials

BASF + Cognis Strategic rationale of acquisition

2. Accelerate profitable and sustainable growth

Broaden market access and build on long-term partnerships with key customersExploit growth opportunities in emerging markets through BASF’s global reachFuel further growth with attractive additional businesses, e.g. mining chemicals

3. Leverage Verbund competence and operational excellence

Complement and extend BASF’s value-chainsExpand BASF’s technology platforms Boost innovation via marketing and formulation excellence


John Feldmann

[Chart 18: Acquisition rationale]

Now to the strategic rationale for this transaction which is

compelling and straight forward.

[Chart 19: Acquisition rationale]

With Cognis, BASF will further develop its position as the preferred

partner for globally leading consumer goods companies – in

particular for fast moving consumer goods. We will significantly

enlarge our offering to consumer product related industries.

We will create the world leader in personal care ingredients

and strengthen our leading position in home care. We will

significantly expand our nutrition and health activities,

particularly in the food area.

On top, BASF will become a major supplier of products based

on renewable raw materials.

Due to the complementary nature of BASF’s and Cognis’ product

portfolio, we will accelerate profitable and sustainable growth from a

strong base.

BASF will provide a wide range of innovative products and

solutions to an expanded customer base. We will pursue

additional growth opportunities in emerging markets by

establishing close partnerships with leading domestic and

global multinational companies.


Cognis’ attractive additional businesses such as mining and

synthetic lubricants fit perfectly with our already existing

portfolio and will fuel future growth.

The joint businesses will benefit from BASF’s Verbund competence

and operational excellence.

With the integration of Cognis’ products into our global

platform we will expand BASF’s value chains. Cognis is for

example a consumer of some of BASF’s products and raw

materials.

Finally, Cognis’ marketing and formulation excellence paired

with BASF’s R&D competence will boost innovation and

accelerate profitable and sustainable growth.


BASF + CognisImproved market positions

CurrentBASF position

FutureBASF position

Personal care ingredients 3 1

Home care ingredients 1 1

Functional nutritioningredients 6 3


[Chart 20: BASF + Cognis – Improved market positions]

To sum up: The acquisition of Cognis by BASF will elevate BASF to

the number one position in personal care and the number three

position in functional nutrition ingredients.

In home care ingredients we will further strengthen our already

leading number one position.

As a leading supplier in these markets we will be able to define

market standards in close cooperation with our customers. We will

operate more efficiently and effectively and finally reach more

customers all over the world.



BASF’s market share in personal care ingredients increases to 14%

BASF + Cognis Industry leader in personal care ingredients

Source: Cognis 2009 company report, BASF own information and estimates

Sales 2009 (est.)

BASF

Cognis

Pro forma


Catering to the contemporary consumer demand for well-being and sustainability

BASF + Cognis: Adding natural-based alcohols to Home Care

Precursors Products

BASF

CognisNatural fatty alcohols

Sugars

Fatty acid derivatives

Synthetic alcohol ethoxylates

Synthetic fatty alcohols

Ethylene oxide

Fatty acid derivativesNatural alcohol ethoxylates

Base Products

Natural fatty acidsNatural oils

Natural alcohol derivativesAlcohol sulfates

Alcohol ethersulfates

Synthetic alcohol derivatives


[Chart 21: BASF + Cognis – Industry leader in personal care

ingredients]

Let’s have an even closer look to personal care ingredients.

The joint forces of Cognis and BASF create a world-class supplier in

the global personal care ingredients market.

BASF will be the only supplier in the personal care market capable

of offering the full-range of ingredients used for example in skin and

hair care.

[Chart 22: BASF + Cognis – Adding natural based alcohols to

Home Care]

Cognis’ renewable resource-based product portfolio perfectly

complements BASF’s fossil raw material-based products, and

subsequently further enhances our leading market position.

In home care, a major driver is the demand for products with better

eco-efficiency, that is products that perform better from both an

ecological as well economical point of view. BASF will offer a full

range of products for this purpose based on renewable and fossil

resources.



Synthetic foodingredients

VitaminsCarotenoids

Accessible market today with

BASF ingredients

New total accessible market

Natural-based ingredients

Plant SterolsNatural Vitamins

Additional accessible market with

Cognis ingredients

Synthetic foodingredients

Natural-based ingredients

BASF + Cognis: Adding natural-based food ingredients to Human Nutrition

Capitalizing on the ever stronger trend for products that provide wellness and sustainability


Transaction is expected to be EPS accretive in year 2!

1.

2.

3.

4.

Generate growth above the industry average

Are innovation-driven

Offer a special value proposition to customers

Reduce earnings cyclicality

5. EPS accretive by year 3 at the latest

BASF + Cognis Transaction meets acquisition criteria


[Chart 23: BASF + Cognis – Adding natural-based food

ingredients to Human Nutrition]

At the same time, Cognis’ natural-based nutrition ingredients greatly

enlarge our functional nutrition ingredients product portfolio. For

example, our customers will have the choice between synthetic as

well as natural-based vitamin E in the future.

In addition, Cognis’ bioactive and non-active ingredients deliver real

health, quality and convenience benefits – from cholesterol

reduction to weight management.

With this broader product portfolio and by exploiting the strong

customer base we are best positioned for strong growth in Human

Nutrition.

[Chart 24: BASF + Cognis – Transaction meets acquisition

criteria]

This transaction will be in full alignment with BASF’s strategy of

growing in innovative, less cyclical businesses and moving closer to

attractive end-consumer markets.

The acquisition meets all of our stated acquisition criteria and will be

earnings accretive already in year two.






4 | Integration

25


Chemicals15%

Agricultural Solutions8%

Oil & Gas23%

Plastics15%

Functional Solutions15%

Performance Products19%

2009 total pro forma sales: €48.7 billion(excluding BASF “Other” segment sales 2009: €4.8 billion)

Cognis5%

BASF + CognisA new dimension in Performance Products

Cognis will be integrated into the Performance Products segment


[Chart 25: Integration]

[Chart 26: BASF + Cognis – A new dimension in Performance

Products]

Cognis’ businesses will be integrated into BASF’s Performance

Products segment, where they will add 5 percentage points to the

segment’s share of BASF’s 2009 pro forma sales.

We will integrate Cognis’ businesses quickly and efficiently to drive

top line growth and to improve profitability by applying our

operational excellence.



Integration into Performance Products segment with the following objectives

Growing >2% points faster than the relevant market

Achieve 20% EBITDA margin in the Performance Products segment by 2012

Acquisition accretive as of 2012

Integration costs of €200-250 million until end of 2012

Cost synergies of at least 5% of 2009 net sales fully achieved by 2013

BASF + Cognis Clear targets


[Chart 27: BASF + Cognis – Clear targets]

For the integration we have set ourselves clear and ambitious

targets:

• The combined businesses will outgrow the relevant markets

by more than two percentage points – in line with the

profitable growth objective of BASF Group.

• For the Performance Products segment, we target an EBITDA

margin of 20% by 2012. This represents a two percentage

point increase of the margin target published at our recent

investor day.

• The acquisition will already be earnings accretive as of 2012.

• The total integration costs are estimated at approximately 200

to 250 million Euros until the end of 2012.

• And finally, we aim to achieve cost synergies of at least 5% of

2009 net sales fully realized by 2013.



BASF’s net financial debt increases by approx. €2.6 billion

Finance via cash on hand and issuance of commercial paperRefinance of Cognis’ financial debt at closing

Financing implications

BASF has US$12.5 billion commercial paper program

Deep liquidity and very attractive funding conditionsAdditional bridge loan of €3 billion arranged to support the CP program

Priorities moving forward

Reduce leverage is paramountMaintain solid A rating


Jürgen Hambrecht

[Chart 28: Financing implications]

The transaction will be financed with cash and through the issuance

of commercial paper.

Our commercial paper program offers us deep liquidity at very

attractive conditions.

Our intention is to refinance Cognis’ outstanding financial debt at

closing.

As a consequence, BASF’s net debt will increase by approximately

2.6 billion Euros.

Looking forward, we have clear priorities in place. Priority number

one will be to focus on cash flow generation and on de-leveraging.

To maintain our solid single A-rating is an absolute must. This

means, there will be no further substantial acquisitions in the

foreseeable future.



BASF + Cognis Value creating transaction

Acquisition will enhance BASF’s market position in consumer driven industries– World leader in personal and home care ingredients– Major supplier for nutrition & health

BASF will leverage market access and innovation capabilities of the combined businesses to deliver profitable growth

Transaction delivers compelling value for shareholders


[Chart 29: BASF + Cognis – Value creating transaction]

Ladies and gentlemen, our proposal to acquire Cognis reflects a

compelling opportunity for significant value creation for BASF’s

shareholders.

The acquisition of Cognis represents a strong addition to our

Performance Products segment and will enhance BASF’s position

as provider of world-class chemical solutions in consumer driven

industries: We will be world leader in personal and home care

ingredients and a major supplier for nutrition and health.

BASF will leverage market access and innovation capabilities of the

combined businesses to deliver profitable and sustainable growth.

Today’s announced acquisition is another piece in the

implementation of our long-term strategy for profitable growth.

Now we will be happy to take your questions.




Cognis: Enterprise value calculation

3,083Enterprise value

700

2,046

172

503

(338)

Equity value

Borrowings

PIK loans

Pension liabilities

./.Cash

Million €



Cognis: Robust Sales and EBITDA growth

12.5

13.213.211.2

1934388

322

1,457 325786

2,584

2009

17.9

18.221.616.6

10.9

11.1 17.99.0

11.4

12.818.79.6

EBITDA margin

thereof Care Chemicals Nutrition & HealthFunctional Products

1876285

328

1,684 346948

3,001

2008

2016287

323

1,572332908

2,844

2007

741938

130

40788

229

728

Q1 2010

Salesthereof Care Chemicals


EBITDAthereof Care Chemicals


Million €

Source: Cognis 2008, 2009, Q1/2010 company reports


Surfactants (anionic, nonionic)PolymersEmollients & emulsifiersActive systemsSilicates

Cognis: Business units and products

Care Chemicals

Nutrition & Health

Functional Products Surfactants (anionic, nonionic)AcrylatesEstersExtraction chemicals

Nutrition ingredients (plant-based sterols, natural-based vitamin E, omega-3s, conjugated linoleic acid, natural-based carotenoids)Food ingredients (emulsifier, specialty compounds)Precursors & excipients

basf reaches agreement with cognis holding luxembourg s.à ... · based on renewable raw-materials,...

Documents